assignment for benefit of creditors

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Assignment for the benefit of the creditors (ABC)(also known as general assignment for the benefit of the creditors) is a voluntary alternative to formal bankruptcy proceedings that transfers all of the assets from a debtor to a trust for liquidating and distributing its assets. The trustee will manage the assets to pay off debt to creditors, and if any assets are left over, they will be transferred back to the debtor. 

ABC can provide many benefits to an insolvent business in lieu of bankruptcy . First, unlike in bankruptcy proceedings, the business can choose the trustee overseeing the process who might know the specifics of the business better than an appointed trustee. Second, bankruptcy proceedings can take much more time, involve more steps, and further restrict how the business is liquidated compared to an ABC which avoids judicial oversight. Thirdly, dissolving or transferring a company through an ABC often avoids the negative publicity that bankruptcy generates. Lastly, a company trying to purchase assets of a struggling company can avoid liability to unsecured creditors of the failing company. This is important because most other options would expose the acquiring business to all the debt of the struggling business. 

ABC has risen in popularity since the early 2000s, but it varies based on the state. California embraces ABC with common law oversight while many states use stricter statutory ABC structures such as Florida. Also, depending on the state’s corporate law and the company’s charter , the struggling business may be forced to get shareholder approval to use ABC which can be difficult in large corporations. 

[Last updated in June of 2021 by the Wex Definitions Team ]

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  • assignments benefits creditors abcs basics california

Assignments for the Benefits of Creditors - "ABC's" - The Basics in California

An assignment for the benefit of creditors (“ABC”) is a contract by which an economically troubled entity ("Assignor") transfers legal and equitable title, as well as custody and control, of its assets and property to an independent third party ("Assignee") in trust, who is required to apply the proceeds of sale of the property to the assignor's creditors in accord with priorities established by law.

ABCs are a well-established common law tool and alternative to formal bankruptcy proceedings. The method only makes sense if there are significant assets to liquidate. ABCs are most successful when the Assignor, Assignee and creditors cooperate but can be imposed even if the creditors are not supportive.

Assignors - Rights and Duties

Generally, any debtor – an individual, partnership, corporation or LLC - may make an assignment for the benefit of creditors. Individuals seldom utilize ABCs, though, because there is no discharge of all debts as there would normally occur in a completed bankruptcy filing. Thus, the protection and benefit of the process is quite limited for any personal obligor.

ABCs can benefit individual principals who have personally guaranteed company obligations or have personal liability on tax claims. Once the Assignment Agreement has been executed, a trust is automatically put in place over the assets transferred. The Assignor can neither rescind the contract nor control the proceedings, but the Assignor may be consulted as necessary and appropriate by the Assignee during the liquidation process.

Assets to be Assigned

Assignor may assign any non-exempt real, personal, and/or general intangible property that can be sold or conveyed. Note that such assets as intellectual property, trade names, logos, etc. may be so transferred and sold. When a corporation makes an assignment, all corporate property, tangible and intangible is transferred including accounts, and rights and credits of all kinds, both in law and equity. The assets only can be sold, not the corporation or its stock. Thus the corporation remains existing, albeit without any significant assets left. It becomes, effectively, a shell.

Assets are typically sold without representations or warranties. The sale is free and clear of known liens, claims and encumbrances - with the consent or full payoff of lien holders. Generally, Assignee warrants only that Assignee has title to the assets.

Assignees - Rights and Duties

The Assignee is generally an unrelated professional liquidator selected by the Assignor. The Assignee gathers the Assignor’s assets and sells the Assignor’s right, title and interest in those assets, then distributes the proceeds to Creditors in accordance with statutory priorities.

The Assignee has a fiduciary duty to the Creditors. Assignee’s duties include protecting the assets of the estate, administering them fairly and representing the estate. Assignee is free to enter into contracts to recover assets or liquidated claims, e.g. filing suit or taking other action.

The Assignee may be removed by a court for violations of the Assignment contract or nonfeasance (failure to act appropriately). The Assignee may not give up his/her/its duties without liability or a superior court order until creditors receive distribution of the proceeds of sale of the assets transferred.

Assignee usually prepares the Assignment documents, though the attorney for the Assignor may draft them as well. Often the terms are negotiated at length.

Preferential Claims and Avoidance

Assignee has statutory avoidance powers, similar to those granted to a Chapter 7 bankruptcy trustee. [See Calif. CCP § 493.030 (termination of lien of attachment or temporary protective order), § 1800 et seq. (avoidance of preferential transfers); Calif. Civ.C. § 3439 et seq. (avoidance of fraudulent conveyances)]

Even so, courts may question this right outside a bankruptcy proceeding. There is also disagreement between the Federal Court (Ninth Circuit) and California state courts whether the Bankruptcy Code preempts the assignee's preference avoidance power under California statutory law.

Creditors - Rights and Duties

While not required to consent to an Assignment, secured creditors often must agree in advance since their cooperation frequently affects the liquidation of the assets. Secured creditors are not barred from enforcing their security by such an assignment. The acceptance of an Assignment by unsecured creditors is not necessary, since under common law the proceedings are deemed to benefit them through equality of treatment.

Note that all Creditors must file their claims within the statutory 150-180 day claim filing period.

ABCs in California do not require a public court filing, but most corporations require both board and shareholder approval. Costs and expenses, including the assignee’s fees, legal expenses and costs of administration, are paid first, just as in a Chapter 7 bankruptcy . Because an assignee’s fee is often based on a percentage value of the assigned assets, it can be difficult to procure assignees for smaller estates.

  • Assignment Agreement is executed and ratified. Assignor turns over and assigns to Assignee all right, title and interest in the assets being assigned.
  • Assignor gives Assignee a complete, certified list of creditors, including addresses and amounts owed.
  • Assignee notifies Creditors within 30 days of execution that assignment has been made, provides an estimate of the probable distribution, and provides a claim form for each Creditor to file a claim in the Assignment estate.
  • Creditors have 150-180 days from the date of written notice of the assignment to file their claims.
  • After claim forms are returned and/or the Bar Date has passed, Assignee reconciles the claims and/or objects to any improper claim amounts.
  • After liquidation, Assignee determines distribution amounts. Claim priority is determined first by state statute, then by Bankruptcy Code. First are secured creditors, then follow tax & wage claims.
  • Assignee generally informs the IRS that assignment has been made and files notice with local Recorder.
  • Assignee immediately searches for any previously undisclosed liens (UCC or real estate) to ensure complete notice to all creditors and interest holders.
  • Assignee secures all assets. In limited situations where the business has enough cash, Assignee may continue to operate the business to maintain going-concern value - if no further debt will be incurred.

It normally takes about 12 months to conclude an ABC.

Effects of ABC

An ABC generally is faster and less costly than a bankruptcy proceeding. Parties can often agree and determine what is going to happen prior to execution of the assignment.

However, ABCs do not discharge individual Assignors from their debts, and do not provide for the reorganization of the business. There is no automatic stay, though in practice an ABC results in an informal and/or incomplete automatic stay if the creditors determine that the assets are beyond their reach.

Creditors are able to continue to pursue the Assignor. ABCs often block judgment creditors from attaching assets because the Assignor no longer has title to or interest in the assigned assets. Sometimes the Assignee is willing to allow the judgment if the judgment creditor submits its claim as described above. The assignee may also defend against a claim if the plaintiff is seeking a judgment which is unjustified and not fair to other creditors.

An ABC also provides grounds for filing an involuntary bankruptcy petition within 120 days of assignment.

The Statutes: California Code of Civil Procedure

§§493.010-493.060 “Effect of Bankruptcy Proceedings and General Assignments for the Benefit of Creditors”

§§1800-1802 “Recovery of Preferences and Exempt Property in an Assignment for the Benefit of Creditors”

A Chapter 11 Reorganization can cost hundreds of thousands of dollars and even a business Chapter 7 Liquidation bankruptcy can easily cost tens of thousands or more. The Assignment method, which pays the Assignee normally by a percentage of the assets sold, is cost-efficient but limited in the protection it may afford the Assignor, as described above. Before this method is attempted, competent legal counsel and certified public accountants should be consulted.

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Sardi Law

Primer on Florida’s Assignment for Benefit of Creditors: What are they?

An assignment for the benefit of creditors is one of the vehicles utilized to liquidate a failed or no longer viable business under state law. This method of liquidating or transferring assets has long been popular in Florida. The assignment case is filed in a Florida Circuit Court where the assets of the business, assignor, are located. The proceeding is analogous to a bankruptcy liquidation of a business entity under Chapter 7 of the Bankruptcy Code.

The assignment is a contract, in which the assignor turns over all assets and liabilities to the assignee for liquidation for the benefit of creditors. The assignment is a transfer of the debtor’s legal and equitable title to property to the assignee, a fiduciary with authority to liquidate the debtor’s affairs and distribute proceeds equitably to creditors. The assignee is typically a professional liquidator.

An assignment proceeding is commenced with the execution of an irrevocable assignment in writing, in compliance with the statutory form which is provided. Once the assignment is executed, the next step is to record the original in the public records in the county where the assignor had its principal place of business and a certified copy in each county where assets of the estate are situated. In addition, the assignee for the benefit of creditors must file a petition with the clerk of the court commencing the assignment proceeding. The assignee must also file a motion asking the court to fix the appropriate amount of the assignee’s bond.

Duties of Assignee

The assignee’s duties are congruent to those of a bankruptcy trustee. These duties include the following:

Collection of the assets of the estate and reducing them to money;

Conducting an initial examination of the assignor under oath within 30 days;

Giving notice to creditors;

Conducting the business of the assignor for limited periods, if appropriate;

Paying administrative expenses of the estate to the extent that they are reasonable and necessary;

Keeping regular accounts and furnishing information concerning the estate to parties-in-interest;\

Examining the validity and priority of all claims against the estate;

Abandoning assets to perfected lien creditors where the estate has no equity;


Hiring professionals as may be necessary;

Paying dividends as appropriate; and

Submitting a final report.

Under the assignment statute, the term “asset” is defined as the “legal or equitable interest of the assignor in property, which includes anything that may be the subject of ownership, whether real or personal, tangible or intangible, including claims and causes of action, whether arising by contract or in tort, wherever located, and by whomever held at the date of the assignment, except property exempt by law from forced sale.” The assignee can pursue all these types of assets to liquidate them for the benefit of creditors, including commencing legal causes of action against third parties – e.g., pursuing fraudulent transfers and other kind of claims.

Significantly, one of the powers of the court is to allow the assignee to operate the business of the assignor for limited periods, if it is in the best interest of the estate to do so. This enables the assignee the opportunity to sell the business as a going concern, in order to obtain more value for the creditors, as there is generally a substantial incremental “going concern value” component to an ongoing business, even if it is insolvent.

As noted above, the assignee must file reports with the court. However, the assignee is required to file an interim report after six months. At the close of the administration, when the assignee is ready to make a final distribution, the assignee must file a final report of all receipts and disbursements and request approval from the court. Upon approval of the assignee’s final report, the court then discharges the assignee and releases the assignee’s bond and the assignment case ends.

Notice, Proof of Claims, and Priority of Claims

The assignee is required to notice of the assignment by publication in a newspaper of general circulation published in the county where the petition is filed and in any other county or counties where the assignment is required to be recorded, once a week for 4 consecutive weeks, within 10 days after filing of the petition; and by mailing notice to all known creditors within 20 days after filing of the petition.

The notice of the assignment must include the date of filing of the petition; the name of the court where the petition is filed and the case number assigned to the petition; the last day on which a proof of claim may be served upon the assignee. Proof of claims must be filed within 120 days from the date of the filing of the petition. Creditors must set out in the proof of claim the name and address of the creditor and the nature and amount of the claim. The proof of claim must be executed by the creditor or the creditor’s authorized agent or attorney.

Florida law sets out the scheme to prioritize claims in the following order by category of claim:

Secured Creditor Claims

Administrative Claims (fees and expenses incurred by the assignee and his professionals during the course of the assignment case)

Governmental Units Unsecured Claims

Wages/Compensation Claims

General Unsecured Creditor Claims

§ 727.114, Fla. Stat.

Section 507 of the Bankruptcy Code sets out a very similar priority scheme. However, wages, salaries, or commissions earned within 180 days before a bankruptcy case is filed or the debtor’s business ceased, whichever is earlier, are entitled to a priority unsecured claim status for up to $12,475. See 11 U.S.C. § 507(a)(4).

Stay of Certain Proceedings

Unlike bankruptcy cases, there is no general automatic stay in assignments.

Under Florida law, proceedings may not be commenced against the assignee. In Florida, all but consensual lien holders, meaning secured creditors and mortgagees, are prohibited from commencing proceedings against the assignee. Holders of nonconsensual liens, such as judgment, execution, or garnishment liens, must participate in the process.

Competing common claims against third parties are also stayed, and cannot be pursued. Only the assignee can prosecute such actions. See Moffatt & Nichol, Inc. v. B.E.A. International Corp., Inc., 2010 WL 4103149 (Fla. 3d DCA 2010) (competing fraudulent transfer claim against third party stayed because once an assignment proceeding is instituted in which all assets are assigned, only the assignee has standing to pursue fraudulent transfer claims on behalf of the estate, otherwise, it would allow one creditor to improperly 'cut in line', in contravention of the spirit of the assignment statute). Unless assignee abandons property subject to such common claims, creditors holding the competing claim must wait to receive their due at the distribution stage in the proceedings. Failure to abide by this concept may lead to the imposition of sanctions.

What to do?

Always remember that decisions regarding bankruptcy, assignment for benefit of creditors, restructuring and insolvency, trust assignment, and other possible solutions to a company’s inability to pay its debts are dependent on the specific situation and circumstances of the company. There’s a reason why businesses are given various choices when it comes to their inability to pay back debt and remain liquid.

In making a decision concerning an assignment for the benefit of creditors, you should weigh how important these factors are in your situation:

- Timing: do you want to control when things happen?

- Cost: are you interested in going a less costly route?

- Simplification: would you like less red tape?

- Stigma of Bankruptcy: are you concerned about your reputation?

- Creditor Agreement: are you looking for the creditor to agree to terms easily and quickly?

If your answers to the above questions are “yes,” then assignment for benefit of creditors may be the best path for you.

If your company is experiencing financial distress and is unable to pay its debts, then you want to seek advice from a business lawyer. Your attorney should be able to assess your present situation and review what options are available to you and which ones will be most helpful in alleviating the pressures of mounting debt.

Creditors should also be aware of the mechanics of assignment cases, and the right to active participate in the process – including the right to conduct discovery. Creditors likewise should consult with an attorney to assist in navigating the process to protect their rights and interests.

SARDI LAW can assist clients with assignments for the benefit of creditors and other insolvency proceedings. Each case is different, and the information provided here is not intended to create an attorney-client relationship. The hiring of a lawyer is an important decision that should not be based solely upon any single source of information, including advertising. You may ask us to send you additional information about us, and we urge you to review other sources of information about Sardi Law, PLLC.

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In The (Red)

The Business Bankruptcy Blog

Assignments For The Benefit Of Creditors: Simple As ABC?

Companies in financial trouble are often forced to liquidate their assets to pay creditors. While a Chapter 11 bankruptcy sometimes makes the most sense, other times a Chapter 7 bankruptcy is required, and in still other situations a corporate dissolution may be best. This post examines another of the options, the assignment for the benefit of creditors, commonly known as an "ABC."

A Few Caveats . It’s important to remember that determining which path an insolvent company should take depends on the specific facts and circumstances involved. As in many areas of the law, one size most definitely does not fit all for financially troubled companies. With those caveats in mind, let’s consider one scenario sometimes seen when a venture-backed or other investor-funded company runs out of money.

One Scenario . After a number of rounds of investment, the investors of a privately held corporation have decided not to put in more money to fund the company’s operations. The company will be out of cash within a few months and borrowing from the company’s lender is no longer an option. The accounts payable list is growing (and aging) and some creditors have started to demand payment. A sale of the business may be possible, however, and a term sheet from a potential buyer is anticipated soon. The company’s real property lease will expire in nine months, but it’s possible that a buyer might want to take over the lease.

  • A Chapter 11 bankruptcy filing is problematic because there is insufficient cash to fund operations going forward, no significant revenues are being generated, and debtor in possession financing seems highly unlikely unless the buyer itself would make a loan. 
  • The board prefers to avoid a Chapter 7 bankruptcy because it’s concerned that a bankruptcy trustee, unfamiliar with the company’s technology, would not be able to generate the best recovery for creditors.

The ABC Option . In many states, another option that may be available to companies in financial trouble is an assignment for the benefit of creditors (or "general assignment for the benefit of creditors" as it is sometimes called). The ABC is an insolvency proceeding governed by state law rather than federal bankruptcy law.

California ABCs . In California, where ABCs have been done for years, the primary governing law is found in California Code of Civil Procedure sections 493.010 to 493.060 and sections 1800 to 1802 , among other provisions of California law. California Code of Civil Procedure section 1802 sets forth, in remarkably brief terms, the main procedural requirements for a company (or individual) making, and an assignee accepting, a general assignment for the benefit of creditors:

1802.  (a) In any general assignment for the benefit of creditors, as defined in Section 493.010, the assignee shall, within 30 days after the assignment has been accepted in writing, give written notice of the assignment to the assignor’s creditors, equityholders, and other parties in interest as set forth on the list provided by the assignor pursuant to subdivision (c).    (b) In the notice given pursuant to subdivision (a), the assignee shall establish a date by which creditors must file their claims to be able to share in the distribution of proceeds of the liquidation of the assignor’s assets.  That date shall be not less than 150 days and not greater than 180 days after the date of the first giving of the written notice to creditors and parties in interest.    (c) The assignor shall provide to the assignee at the time of the making of the assignment a list of creditors, equityholders, and other parties in interest, signed under penalty of  perjury, which shall include the names, addresses, cities, states, and ZIP Codes for each person together with the amount of that person’s anticipated claim in the assignment proceedings.

In California, the company and the assignee enter into a formal "Assignment Agreement." The company must also provide the assignee with a list of creditors, equityholders, and other interested parties (names, addresses, and claim amounts). The assignee is required to give notice to creditors of the assignment, setting a bar date for filing claims with the assignee that is between five to six months later.

ABCs In Other States . Many other states have ABC statutes although in practice they have been used to varying degrees. For example, ABCs have been more common in California than in states on the East Coast, but important exceptions exist. Delaware corporations can generally avail themselves of Delaware’s voluntary assignment statutes , and its procedures have both similarities and important differences from the approach taken in California. Scott Riddle of the Georgia Bankruptcy Law Blog has an interesting post discussing ABC’s under Georgia law . Florida is another state in which ABCs are done under specific statutory procedures . For an excellent book that has information on how ABCs are conducted in various states, see Geoffrey Berman’s General Assignments for the Benefit of Creditors: The ABCs of ABCs , published by the American Bankruptcy Institute .

Important Features Of ABCs . A full analysis of how ABCs function in a particular state and how one might affect a specific company requires legal advice from insolvency counsel. The following highlights some (but by no means all) of the key features of ABCs:

  • Court Filing Issue . In California, making an ABC does not require a public court filing. Some other states, however, do require a court filing to initiate or complete an ABC.
  • Select The Assignee . Unlike a Chapter 7 bankruptcy trustee, who is randomly appointed from those on an approved panel, a corporation making an assignment is generally able to choose the assignee.
  • Shareholder Approval . Most corporations require both board and shareholder approval for an ABC because it involves the transfer to the assignee of substantially all of the corporation’s assets. This makes ABCs impractical for most publicly held corporations.
  • Liquidator As Fiduciary . The assignee is a fiduciary to the creditors and is typically a professional liquidator.
  • Assignee Fees . The fees charged by assignees often involve an upfront payment and a percentage based on the assets liquidated.
  • No Automatic Stay . In many states, including California, an ABC does not give rise to an automatic stay  like bankruptcy, although an assignee can often block judgment creditors from attaching assets.
  • Event Of Default . The making of a general assignment for the benefit of creditors is typically a default under most contracts. As a result, contracts may be terminated upon the assignment under an ipso facto clause .
  • Proof Of Claim . For creditors, an ABC process generally involves the submission to the assignee of a proof of claim by a stated deadline or bar date, similar to bankruptcy. (Click on the link for an example of an ABC proof of claim form .)
  • Employee Priority . Employee and other claim priorities are governed by state law and may involve different amounts than apply under the Bankruptcy Code. In California, for example, the employee wage and salary priority is $4,300, not the $10,950 amount currently in force under the Bankruptcy Code.
  • 20 Day Goods . Generally, ABC statutes do not have a provision similar to that under Bankruptcy Code Section 503(b)(9) , which gives an administrative claim priority to vendors who sold goods in the ordinary course of business to a debtor during the 20 days before a bankruptcy filing . As a result, these vendors may recover less in an ABC than in a bankruptcy case, subject to assertion of their reclamation rights .
  • Landlord Claim . Unlike bankruptcy, there generally is no cap imposed on a landlord’s claim for breach of a real property lease in an ABC.
  • Sale Of Assets . In many states, including California, sales by the assignee of the company’s assets are completed as a private transaction without approval of a court. However, unlike a bankruptcy Section 363 sale , there is usually no ability to sell assets "free and clear" of liens and security interests without the consent or full payoff of lienholders. Likewise, leases or executory contracts cannot be assigned without required consents from the other contracting party.
  • Avoidance Actions . Most states allow assignees to pursue preferences and fraudulent transfers. However, the U.S. Court of Appeals for the Ninth Circuit has held that the Bankruptcy Code pre-empts California’s preference statute , California Code of Civil Procedure section 1800. Nevertheless, to date the California state courts have refused to follow the Ninth Circuit’s decision and still permit assignees to sue for preferences in California state court . In February 2008, a Delaware state court followed the California state court decisions , refusing either to follow the Ninth Circuit position or to hold that the California preference statute was pre-empted by the Bankruptcy Code. The Delaware court was required to apply California’s ABC preference statute because the avoidance action arose out of an earlier California ABC.

The Scenario Revisited. With this overview in mind, let’s return to our company in distress.

  • The prospect of a term sheet from a potential buyer may influence whether our hypothetical company should choose an ABC or another approach. Some buyers will refuse to purchase assets outside of a Chapter 11 bankruptcy or a Chapter 7 case. Others are comfortable with the ABC process and believe it provides an added level of protection from fraudulent transfer claims  compared to purchasing the assets directly from the insolvent company. Depending on the value to be generated by a sale, these considerations may lead the company to select one approach over the other available options.
  • In states like California where no court approval is required for a sale, the ABC can also mean a much faster closing — often within a day or two of the ABC itself provided that the assignee has had time to perform due diligence on the sale and any alternatives — instead of the more typical 30-60 days required for bankruptcy court approval of a Section 363 sale. Given the speed at which they can be done, in the right situation an ABC can permit a "going concern" sale to be achieved.
  • Secured creditors with liens against the assets to be sold will either need to be paid off through the sale or will have to consent to release their liens; forced "free and clear" sales generally are not possible in an ABC.
  • If the buyer decides to take the real property lease, the landlord will need to consent to the lease assignment. Unlike bankruptcy, the ABC process generally cannot force a landlord or other third party to accept assignment of a lease or executory contract.
  • If the buyer decides not to take the lease, or no sale occurs, the fact that only nine months remains on the lease means that this company would not benefit from bankruptcy’s cap on landlord claims. If the company’s lease had years remaining, and if the landlord were unwilling to agree to a lease termination approximating the result under bankruptcy’s landlord claim cap, the company would need to consider whether a bankruptcy filing was necessary to avoid substantial dilution to other unsecured creditor claims that a large, uncapped landlord claim would produce in an ABC.
  • If the potential buyer walks away, the assignee would be responsible for determining whether a sale of all or a part of the assets was still possible. In any event, assets would be liquidated by the assignee to the extent feasible and any proceeds would be distributed to creditors in order of their priority through the ABC’s claims process.
  • While other options are available and should be explored, an ABC may make sense for this company depending upon the buyer’s views, the value to creditors and other constituencies that a sale would produce, and a clear-eyed assessment of alternative insolvency methods. 

Conclusion . When weighing all of the relevant issues, an insolvent company’s management and board would be well-served to seek the advice of counsel and other insolvency professionals as early as possible in the process. The old song may say that ABC is as "easy as 1-2-3," but assessing whether an assignment for the benefit of creditors is best for an insolvent company involves the analysis of a myriad of complex factors.

  • Assignment for the Benefit of Creditors

Helping Florida business owners exit gracefully and move on with less time and hassle than bankruptcy

An assignment for the benefit of creditors (ABC) is one way for an insolvent company to wind down its operations in an orderly fashion. Like a Chapter 7 business bankruptcy, an ABC involves selling the company’s assets and using the proceeds to pay off creditors, but without the stigma of a bankruptcy on their credit report or the mind of the public.

The business attorneys at Edelboim Lieberman Revah have successfully helped many South Florida companies with an assignment for the benefit of creditors. Learn more about ABCs below, and call Edelboim Lieberman Revah in Miami or Fort Lauderdale to find out if an ABC is right for you.

How does an ABC work?

The owner of the company (the assignor) makes an assignment, or transfer, of company assets and debts to another company or law firm (the assignee). The assignee is then responsible to sell the assets and use the proceeds to pay off the creditors. By using an ABC, the assignor gets to move on quickly from the insolvent company without having to personally go through the process of liquidating assets and paying creditors or going through the Chapter 7 bankruptcy process.

ABCs Under Florida Law

Unlike a Chapter 7 bankruptcy, which takes place in federal bankruptcy court and is supervised by a federal bankruptcy trustee, ABCs are filed in and supervised by the Florida state courts. Florida Statutes Chapter 727 governs an assignment for the benefit of creditors.

Following are some important points about the way ABCs operate in Florida:

  • ABCs must be in writing. Florida statutes provide a sample form of assignment; the ABC should be in substantially the same form.
  • An ABC represents an irrevocable assignment.
  • The assignee files the assignment with the court, publishes a notice of the assignment as required by law and also notifies creditors of the assignment.
  • In certain situations, the assignee can carry on the business for a period to maximize return.
  • The assignee can reject an unexpired lease.
  • The assignee can hire professionals as needed, such as accountants, appraisers, auctioneers, and attorneys, to assist in the liquidation of assets.
  • The assignee can examine the validity and priority of claims and litigate disputed claims.
  • The assignee can sue to enforce claims the assignee may have by virtue of the assignment or assign a cause of action to another party.
  • The assignee must file interim and final reports with the court.
  • Any monies left over after creditors are paid goes back to the assignor.

Is an ABC better than bankruptcy?

An ABC liquidates assets and winds down business operations similar to a Chapter 7 bankruptcy, and an ABC is conducted under court supervision like Chapter 7. However, an ABC can offer advantages over Chapter 7 in many instances. Importantly, an assignee typically gets a greater return when selling assets since the assignee is frequently knowledgeable about the industry and is often a skilled and experienced negotiator. Additionally, an assignee can continue to run the business as a going concern for a while and even sell it as such, which a bankruptcy trustee won’t do.

ABCs also offer more privacy to the assignor, as opposed to going through the public court filings of a bankruptcy. And the ABC is faster for the assignor. The assignor makes the assignment and is done, rather than going through bankruptcy which can take months or years depending on the assets to be liquidated.

On the other hand, an assignor does not get the benefit of the automatic stay afforded by bankruptcy, which might encourage a company to file for bankruptcy instead. Yet one could argue there is no reason a creditor would go after an assignor after the ABC has been executed, knowing the assignor no longer has assets. Generally speaking, ABCs are usually a less litigious process than Chapter 7 for businesses.

Is an ABC right for me?

If you have racked up a large amount of debt with a lot of different creditors and you see that your business is not going to make it, an assignment for the benefit of creditors might be the smart move. Especially if you have a large number of assets, liquidating the business to pay off your creditors can take months or even years. An ABC lets you transfer all your assets and debts at once, allowing you to move on immediately while the assignee takes on the burden of handling the liquidation and paying off creditors.

Since there are pros and cons to both Chapter 7 bankruptcy and ABCs, and there may be other unexplored alternatives as well, the best thing to do is sit down with an experienced business bankruptcy attorney to analyze your situation and look at all your options, so you can choose the best path forward that makes sense for you.

Get Help Today With an Assignment for the Benefit of Creditors in Miami and South Florida

For help with an Assignment for the Benefit of Creditors or other aspects of business bankruptcy in South Florida, contact Edelboim Lieberman Revah at their offices in Miami and Fort Lauderdale by calling 305-768-9909 for a no-cost, confidential consultation.


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The Road to an Assignment for the Benefit of Creditors (ABC): A Case Study

Road to an ABC

  • August 29, 2022
  • / Alternatives to Business Bankruptcy
  • Tags: Assignment for the Benefit of Creditors ,

How Does a Company Decide to Enter an Assignment for the Benefit of Creditors?

This is how a troubled company considered its duties and options before executing a strategy using an assignment for the benefit of creditors (ABC) . They successfully mitigated potential losses. The guarantor’s liability was minimized, the bank and going-concern buyer got what they wanted, and the enterprise continued. This story puts meat onto skeletal discussions of ABC rules and how they compare with competing resolution structures under the Bankruptcy Code and Uniform Commercial Code (UCC) .

A family-owned business in Illinois had lost large amounts of money for 3 years. Trade creditors had been stretched, and some were cutting the company off. Several breach of contract lawsuits were working their way through the courts, but no judgments had been entered. Some trade creditors received payments to induce them to continue shipping. The company had only paid some of their federal and state withholding taxes. It struggled to keep current on debt obligations to the bank, which had good liens on inventory, accounts receivable, and equipment, as well as a mortgage on the company’s real estate. Following difficult discussions with the bank, the board of directors and the majority shareholder/CEO — who had guaranteed the company’s debt to the bank — concluded that the company should sell or liquidate its assets. The board and shareholder agreed that a sale of the company as a going concern would generate more proceeds than would a liquidation. A sale would further pay down the bank loan and diminish the shareholder’s liability on his personal guarantee.

The shareholder had been quietly marketing the company for several months and was negotiating a letter of intent with a strategic buyer to purchase the assets of the business. The asset the buyer most desired was the company’s large but perishable customer base. The buyer believed it could retain that customer base if the sale closed quickly. The buyer also agreed to purchase the inventory and equipment but did not want the accounts receivable or environmentally challenged real estate. The buyer offered to purchase the inventory at 50% of book value and the equipment at 80% of orderly liquidation value. As part of the deal, the buyer would assist the company in collecting on accounts receivable for a period of time. The company and shareholder estimated that the purchase price, plus proceeds from the liquidation of the accounts receivable and real estate, could potentially yield net proceeds exceeding the debt to the bank.

The buyer planned to retain the shareholder/CEO for his strong relationships with a number of large customers. The buyer intended to move the business to an out-of-state facility, which meant termination of employment for most of the company’s 100 workers. The buyer would offer permanent future employment to a few employees, but most would be needed only for a limited post-sale transition period to ensure continuous operation.

The bank was willing — if such a sale would get the debt paid. Importantly, the shareholder, concerned for his reputation, wanted to keep financial issues as quiet as possible. He thought it better to sell assets on the “down low,” as it were.

Examining Options

After consulting insolvency counsel, the board recognized that insolvency gave the board fiduciary obligations to the creditors. The board had to preserve the assets and sell them for the highest value possible. The shareholder was anxious to address guarantee and federal withholding tax issues with net proceeds remaining after payment to the bank. They considered the following options.

Chapter 11 Bankruptcy

The company could operate in chapter 11 as a debtor-in-possession . As such, the automatic stay would bar progress in the trade creditor suits. Company assets could be sold to the highest bidder through a sale under section 363 of the Bankruptcy Code. Such a sale could get the buyer title to the assets, free and clear of liens, claims, and encumbrances, which might result in a better price. However, the chapter 11 process through sale would take no less than 60 to 90 days. It would be a very public, court-supervised process that might involve a contentious creditors’ committee populated by those stretched and restive creditors. Each aspect of this process would increase expenses, and it was not clear that the bank would fund operations or expenses. It appeared that the buyer, having performed due diligence, would be willing to purchase the assets through a faster process, even with less protection for the title.

Chapter 7 Bankruptcy

Under a chapter 7 bankruptcy case, a chapter 7 trustee would be appointed by the U.S. Trustee and would immediately displace company management. It is unlikely  that a trustee would operate in a chapter 7 or secure bank financing to make that possible. The resulting liquidation would destroy going-concern value. The customer base would dissipate. The realization on inventory and receivables would diminish in liquidation. Even if the trustee received an Asset Purchase Agreement at the outset of the case and was willing to operate the business, the public and court-supervised process would still take at least 60 to 90 days at considerable cost.

Foreclosure and Sale Under Article 9 of the UCC

The board was willing to conduct a foreclosure sale of the company’s personal property assets, subject to the bank’s senior lien. An Article 9 foreclosure sale does not require court involvement. It can be concluded in 10 to 20 days, radically lowering the cost compared to sales in bankruptcy. The bank’s attorney, however, believed that, if an involuntary bankruptcy were filed, the company had to shut down for 20 days prior to a sale to diminish the potential effect of section 503(b)(9) claims by creditors. Shutting down the business for 20 days would destroy the value of the customer base to the buyer.

Assignment for the Benefit of Creditors

An assignment for the benefit of creditors is a well-established out-of-court process under Illinois common law. Other states, such as Massachusetts and Missouri, also have non-judicial common law ABC processes. In some states, the ABC process may be statutory and court-supervised.

When an assignment is made, all company’s assets are transferred to a trust administered by the assignee. The company, or the assignor, is allowed to select its own assignee to administer the assets. The U.S. Trustee’s office does not randomly select an assignee as is the case in a Chapter 7. There is no automatic stay in an ABC. However, it creates a similar effect because the assignee is accorded lien creditor rights as of the date of the assignment and thus stands ahead of all unsecured creditors and later-perfected secured creditors. Most creditors stop pursuing collection lawsuits against an assignor after an ABC begins because

(1) the defendant assignor no longer has any assets, and

(2) even if the plaintiff creditor adds the assignee as defendant, the assignee’s rights are prior to the creditor’s judgment and to any judgment lien the creditor might then file.

The ABC process is typically faster and less expensive than a chapter 7 or chapter 11 bankruptcy case. A sale of assets can be done in as few as 10 business days and can be done in conjunction with an Article 9 foreclosure. A buyer purchasing from an assignee receives the right, title, and interest in the company’s assets that was transferred to the assignee when the assignment was made.

[Editors’ Note : ABC may not be available in receiverships. To learn more, please see 90 Second Lesson: Receivership vs Bankruptcy . ]

Proposing an Assignment for the Benefit of Creditors

The buyer was willing to take some title risk to get the deal done quickly and to preserve the customer base. The bank recognized that the assignment for the benefit of creditors was its best option to maximize value from inventory and receivables. The bank agreed to support the ABC, lend funds to the proposed assignee, and pay the administrative costs of the trust estate. The buyer agreed to lease the company’s real property during the transition period following the sale date and to reimburse the trust for payroll costs and certain operating expenses.

[Editors’ Note : For more information on what a secured lender can do when its borrower is in trouble, please see What Secured Lenders Should Know If Their Borrower Files for Bankruptcy . ]

Principal Issues and Arrangements

Prior to formal acceptance of the assignment, the assignee and their attorney needed to work through substantive issues, including:

  • Negotiating the Asset Purchase Agreement — The completed Asset Purchase Agreement and Operating Agreement would trigger the ABC. Because of the assignee’s fiduciary duty to get the highest and best price possible, and because a public sale of the assets was feasible, the buyer had to agree to marketing and sale of the assets by public auction. The agreements provided that the auction would be 20 days into the assignment, giving the assignee time to reach out to other potential buyers. The sale would be advertised in the auction section of the Chicago Tribune for 2 consecutive weekends. The buyer’s deposit of 10% of the purchase price, and potential bidders had to post that amount before bidding. The agreements also afforded the buyer bid protection — new bids had to exceed the current bid by a set increment, and the prevailing bidder was obligated to close.
  • Environmental Issues with the Real Estate — The Buyer did not want the real estate since it had potential environmental issues. The company agreed to place the real property into an LLC owned by the company. The company’s LLC member interest would be transferred to the assignee as part of the assignment. The assignee would sell the real estate in a separate transaction.
  • Employee Layoffs and Terminations – The company had more than 100 employees and the buyer would not retain most of them. The company was subject to the federal WARN Act and its state law counterpart, so it made sense to complete the appropriate notice to state and local officials and employees before the assignment was accepted. Therefore, the WARN liability would be a pre-assignment liability, not an administrative cost of the estate. The WARN liability would be paid from proceeds left over after the bank was paid in full, rather than being paid ahead of the bank. Key employees agreed to stay with the business for a certain time with some stay-bonus arrangements.
  • Funding Agreement with the Bank — The assignee prepared a liquidation expense budget for the bank. The bank agreed to fund the budget and provide cash advances to the assignee.

Once these issues were resolved, the assignee accepted the ABC, and all company’s assets were moved into the agreed upon trust per the trust agreement. Immediately following the acceptance of the ABC, the assigne e sent a notice to creditors

  • informing them that the assignment had taken place,
  • informing them of the sale and auction,
  • providing a schedule of assets and liabilities,
  • providing a claim form for the creditor to complete and return to the assignee, and
  • disclosing the buyer’s plan to retain the shareholder/CEO after the sale

Such a notice initiates clear and reliable communication with creditors, which is critical to the success of an ABC. It reassures creditors that the assignee will honor its duties rather than balking and stretching as a company does when it’s in distress. Some creditors who received extra payments prior to the ABC inquired as to preference issues. However, in Illinois, an assignee has no power to avoid and recover preferential payments made by a company. Such creditors may be relieved that no bankruptcy case was filed, whereupon they would be exposed to such potential liability.

The assignee received responses to the auction marketing. Several parties performed due diligence on the assets, and one showed up to the auction and bid. The buyer prevailed at the auction, and the closing occurred 2 days later.

Following the closing:

  • The assignee and the buyer operated the facility for a short period of time while the buyer transitioned customers, inventory, and equipment to its other facility.
  • The buyer helped collect accounts receivable for approximately four months.
  • WARN claimants with pre-assignment unsecured claims, were entitled to no more than the dividend other unsecured claimants were entitled to.
  • The shareholder/CEO retained liability for federal tax liabilities.
  • The real estate was listed with a broker for later sale by the assignee.
  • The assignee sent 2 additional notices to creditors reporting the progress of the liquidation and their prospects for a dividend.
  • The bank and shareholder/CEO negotiated the latter’s liability related to his guarantee of the company’s obligations.


This tale illustrates how an assignment for the benefit of creditors might mitigate loss and preserve going-concern value. There are certain practical considerations when navigating an ABC:

  • Before deciding on an ABC, a distressed company, and its secured lender, must weigh the pros and cons of each bankruptcy option and sale options to determine the best fit.
  • Before an assignee formally accepts an ABC, he should consider situational factors and potential complications. These might include personnel issues like WARN Act rules and liability, financial and tax responsibilities, real estate issues like repair costs and environmental concerns, and packaging assets for maximum realization. Package them with the real estate or separate from the real estate? Exclude certain asset classes?
  • The assignee must work closely with the secured lender to ensure funding for the administration of the ABC.
  • The assignee should ensure good communication with employees, creditors, and other stakeholders.

[ Editors’ Note : To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure and each includes a comprehensive customer PowerPoint about the topic):

  • Bankruptcy Intersections  
  • Chapter 11 Potpourri  
  • The Nuts & Bolts of a Chapter 11 Plan  

This is an updated version of an article originally published in December 2013; it was previously updated on April 25, 2019 and was most recently edited by Nora Willi ]

© 2022. DailyDAC TM , LLC d/b/a/ Financial Poise TM . This article is subject to the disclaimers found here .

About Howard Korenthal

Howard Korenthal is a Principal and Chief Operating Officer at MorrisAnderson and Associates, Ltd.  He has over 30 years of experience  assisting financially distressed and  underperforming companies in senior management, interim management and financial advisory roles,  and  has been instrumental in over 200 turnaround and restructuring projects and complex chapter 11 proceeding. Howard has extensive…

Read Full Bio »   •   View all articles by Howard »

Howard Korenthal

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Pursuing Assignments for the Benefit of Creditors

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What are assignments for the benefit of creditors?

Assignments for the benefit of creditors (ABCs) are an alternative to formal bankruptcy proceedings. Under Florida law, an ABC is a voluntary, out-of-court process where a debtor transfers their assets to an assignee, who then liquidates these assets and distributes the proceeds to the debtor’s creditors.

For example, a struggling business in Florida may pursue an ABC instead of filing for bankruptcy. This choice can be advantageous because it is often faster, less expensive, and less public than a formal bankruptcy filing. The business would transfer its assets to an assignee responsible for selling these assets and distributing the proceeds to the creditors following the priorities established by Florida law.

Need a bankruptcy law advocate? Schedule your consultation today with a top bankruptcy and restructuring attorney.

Which Florida laws and regulations apply to assignments for the benefit of creditors?

The primary source of law governing ABCs in Florida is Chapter 727 of the Florida Statutes . This chapter outlines the process for initiating an ABC, the assignee’s role, and the creditors’ rights. Additionally, the Florida Rules of Civil Procedure may apply to certain aspects of an ABC, such as serving notice to creditors and managing creditor claims.

Federal laws, such as the Bankruptcy Code , generally do not apply to ABCs because they are state law alternatives to bankruptcy. However, it is essential to note that federal laws may still impact an ABC in certain situations, such as when a debtor’s assets are subject to federal tax liens or other federal claims. In these cases, debtors must consult a knowledgeable attorney to navigate the interplay between state and federal laws.

How do assignments for the benefit of creditors connect to the bankruptcy process?

The connection between pursuing an ABC and bankruptcy legal services for debtors lies in their shared goal of providing relief to financially distressed individuals or businesses. Both processes involve the liquidation of assets and the distribution of proceeds to creditors. However, ABCs are generally less formal, less expensive, and more private than bankruptcy filings, making them an attractive option for debtors seeking to avoid the stigma and complexities associated with bankruptcy.

In an ABC, a debtor voluntarily transfers their assets to an assignee who liquidates them and distributes the proceeds to creditors. This process differs from a bankruptcy proceeding, where a court-appointed trustee oversees the operation. Furthermore, while strict federal rules and procedures bind bankruptcy cases, ABCs offer more flexibility, allowing parties to tailor the process to their needs.

When a set of facts is appropriate for bankruptcy services, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation or another form of specialized bankruptcy advocacy, please contact our office to set up your initial consultation.

What are the prerequisites for debtors to pursue assignments for the benefit of creditors?

Consider the following:

  • Voluntary action: The debtor must willingly initiate an ABC, as this process is a voluntary alternative to bankruptcy.
  • Valid assignment: The debtor must properly execute and deliver the assignment to a qualified assignee, who is often an attorney, accountant, or insolvency professional.
  • Recording the assignment: The assignee must record the assignment in the county’s public records containing the debtor’s principal place of business.
  • Filing notice: The assignee must file a notice of the assignment with the circuit court clerk in the county where the debtor recorded the assignment.
  • Notifying creditors: The assignee must provide written notice to all known creditors of the debtor within 20 days of the assignment, informing them about the ABC process and their rights.

By satisfying these requirements, the debtor can effectively pursue an ABC in Florida, which allows for a more personal and flexible approach to resolving financial difficulties compared to bankruptcy.

Please contact our office to set up your initial consultation to see what forms of legal protection and advocacy may be available for your unique situation.

Frequently Asked Questions

  • Can a debtor choose any person as an assignee for an ABC?

No, not just anyone can be an assignee. The assignee must be a disinterested person who is not an insider of the debtor and is qualified to manage the debtor’s assets and affairs. Assignees are typically professionals, such as attorneys, accountants, or insolvency experts.

  • Does an ABC in Florida prevent creditors from pursuing legal action against the debtor?

Unlike bankruptcy, an ABC does not automatically halt legal actions by creditors. However, creditors may agree to a standstill or moratorium on legal actions while the ABC process is ongoing. This outcome may depend on the specific circumstances and the willingness of the creditors to cooperate.

  • How does an ABC affect the debtor’s credit rating?

Although an ABC may be less public and stigmatizing than bankruptcy, it can still harm the debtor’s credit rating. Credit reporting agencies may treat an ABC as a similar event to a default, which can lower the debtor’s credit score and make it more difficult for them to obtain future credit or loans. However, the impact on the credit rating may vary depending on the specific circumstances of the case and the debtor’s credit history before the ABC. Therefore, debtors must work closely with financial advisors and credit counselors to rebuild their credit after an ABC process.

Have more questions about how bankruptcy services could positively impact your business operations and relationships?

Crucially, this overview of assignments for the benefit of creditors does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation .

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